Securities Regulation Daily Wrap Up, TOP STORY—Manchin, Republican Senators voice opposition to SEC’s climate disclosure proposals, (Apr 7, 2022)
They argue, among other things, that the disclosure is unnecessary given the large number of companies that already publish sustainability reports.
In separate letters to SEC Chair Gary Gensler, Sen. Joe Manchin (D-WV) and 19 Republican senators expressed their opposition to the climate-related disclosure proposals issued by the Commission on March 21. In his letter, Manchin not only objected to requiring additional disclosure where it is already provided, but also to what he referred to as the targeting of fossil fuel companies.
Under the proposed rules, companies would have to provide information about Scope 1 and Scope 2 emissions along with an attestation report from an independent attestation service provider if the company is an accelerated or large accelerated filer. The proposals also include Scope 3 disclosures to the extent they are material or if a company has such an emissions target.
With respect to Scope 3 emissions disclosure, the proposals would exempt smaller reporting companies from the requirement, would afford companies a longer phase-in time, would provide for a safe harbor, and would not require attestation. The proposals also provide for forward-looking statement safe harbors under the Private Securities Litigation Reform Act.
No problem. In his letter, Manchin acknowledged that the proposed disclosures are currently voluntary, but questioned why it is needed if nearly two-thirds of companies in the Russell 1000 Index already provide sustainability reports that include climate risk information. The proposed rule aims to solve a problem that does not exist, he wrote.
He also is concerned that not all public companies have the capability to capture the required data. The rule, if adopted, could impose undue financial hardships on companies with fewer resources, in his opinion.
Fossil fuels. Manchin, whose state is home to the highest number of coal mining jobs in the U.S., said that he is most concerned about the proposals’ impact on fossil fuel companies. These companies will face heightened reporting requirements due to their operations, he argued, and will be subject to additional scrutiny for the Scope 3 emission disclosures of other companies that use their services and products. Large accelerated filers will have the additional step of obtaining certification from a third-party to attest to the accuracy of the disclosures, he noted.
Manchin said that enacting rules that are duplicative, particularly for energy companies, may add additional burdens that are costly for publicly traded companies. He favors rules that are fair and rational, he noted, and believes that reassessing the responsibilities of U.S. energy companies within the proposed disclosures is critical component to ensuring that fairness.
He urged Gensler and the Commission to reassess the structure and need for the proposed disclosures. He asked that the SEC consider alternative reporting requirements, especially for companies that are already required to disclose emissions and climate-risk data such as those subject to the EPA’s Greenhouse Gas Reporting Program.
Republicans’ letter. The letter from the group of Republican senators led by Sen. Kevin Cramer (R-ND) struck a sterner tone, asking the SEC to withdraw the proposed disclosure requirements altogether. Creating climate policy is the job of elected lawmakers, not unelected regulators at the SEC, they wrote.
They pointed out that existing securities regulations already require companies to disclose material risks no matter the source of the risk, through annual and periodic reports. They also supported Manchin’s view that many companies already voluntarily provide substantial amounts of information regarding their sustainability practices that are subject to existing statutory prohibitions against false and misleading statements.
The senators objected to the compliance costs that the disclosure would impose on companies, which they believe would reduce the amount of capital that could be deployed elsewhere in the economy and possibly reduce shareholder returns. A further consequence of the increased disclosure obligations, in their view, is a potential decrease in the number of companies willing to be publicly traded, thereby denying new opportunities to investors.
Energy policy. Finally, the senators decried what they see as the Biden Administration’s hostility toward fossil fuels. They believe that regulations like those proposed by the SEC have a chilling effect on markets and long-term investments, meaning that oil, gas, and mining companies have reduced access to the credit and capital they need. The proposed rules will allocate capital away from domestic fossil fuel producers, increase energy costs, and transfer investment to overseas energy sources, they concluded.
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